What Are the Housing Standards for an FHA Loan?

As part of the Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) insures loans offered by participating lenders. The FHA's popular 203(b) mortgage insurance product provides banks with a guarantee: if a homeowner defaults, the federal government pays off his loan balance. To qualify for an FHA loan, properties must meet criteria set by HUD.

Property Types

The FHA insures one- to four-unit detached and semidetached dwellings as well as townhouses, row houses and units in some condominium projects. The FHA will not insure several types of properties, including commercial establishments, motels and hotels and fraternity or sorority houses, according to HUD's "Mortgage Credit Analysis for Mortgage Insurance on One- to Four-Unit Mortgage Loans" document. According to HUD data, the FHA favors single-family dwellings. As of July 2010, the FHA counts 6.1 million single-family homes and 13,000 multifamily dwellings in its stable.

Occupancy Requirements

Generally the FHA will not insure loans on investor-owned properties. In most cases, to qualify for an FHA loan a borrower must occupy the property as her principal residence. Homeowners must establish occupancy for a period of one year. The FHA does not usually allow an individual to hold more than one FHA loan at a time, though there are some exceptions. For instance, if a homeowner relocates or experiences an increase in household size, FHA lenders may approve a second FHA mortgage while allowing the borrower to keep the original home. HUD prohibits the use of FHA-insured loans for secondary residences intended for recreational use. For example, a borrower cannot use an FHA mortgage for a vacation home. The FHA will insure loans on secondary residences acquired for seasonal employment, work-related relocation or other purposes not related to recreational use of the property if there is a shortage of affordable rental units in the target area.

Mortgage Limits

The FHA insures mortgages only up to a certain size. HUD publishes a database that provides updated mortgage limits by area. Generally, the more expensive the housing market, the higher the FHA mortgage threshold. For instance, as of February 2009 the maximum FHA mortgage for a single-family home in San Francisco is $729,750. HUD points out, though, that in expensive areas lenders can increase this figure to either 95 percent of the area's median single-family home value or 87 percent of the limit set by Freddie Mac, whichever is lower.

About the Author

As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.